Federal High Court rules against income tax assessment based on value of properties

At a recent sitting in Abuja, the Federal High Court (FHC) ruled that income tax assessment notices issued by Federal Inland Revenue Service (FIRS) based on deemed turnover, derived from the value of a taxpayer’s property, is not in line with the relevant provisions of Companies Income Tax Act (CITA). The FHC therefore granted a perpetual injunction restraining FIRS from issuing a companies income tax (CIT) assessment based on deemed turnover using value of taxpayer’s property.

This decision arose from an action filed by Theodak Nigeria Limited (the Plaintiff) against FIRS, following FIRS’ issuance of a best of judgement assessment notice to the Plaintiff, using the value of the Plaintiff’s property located in Abuja, to determine turnover and profit assessable to tax.

The following issues were considered in the case:

  • Whether FIRS is empowered by Section 30(1)a of CITA to value the Plaintiff’s property, deem the Plaintiff’s turnover based on the value of the property and subject the Plaintiff to CIT based on the deemed turnover
  • Whether FIRS is empowered to commence or enforce actions for the recovery of ₦94,681,800 from the Plaintiff, or to take over and seal the Plaintiff’s property for failure to comply with the demand notices issued by FIRS, based on valuation of the Plaintiff’s property

FIRS made reference to Section 69(1) and (2) of CITA and submitted that the Plaintiff did not object to the assessment notices within 30 days of receipt and that the assessments had therefore become final and conclusive. Section 69 (1) of CITA states that “If any company disputes the assessment it may apply to the Board, by notice of objection in writing, to review and to revise the assessment made upon it”.

In response, the court held that the use of the word “may” in Section 69(1) of CITA does not place the Plaintiff under any obligation to file an objection to FIRS.

In delivering its judgment, the FHC ruled in favour of the Plaintiff, on the following bases:

  1. Assessment to CIT based on the value of property is inconsistent with relevant provisions of CITA;
  2. The value of the Plaintiff’s property for the purpose of CIT is not the turnover of the Plaintiff; and
  3. The action of FIRS in unilaterally assessing the Plaintiff’s property to tax is oppressive and is beyond the legal powers and authority of FIRS as contained in Section 30 of CITA  

The FHC’s judgment is a welcome development, as it provides clarity on the subject and addresses the matter once and for all. It remains to be seen if FIRS would approach the Appeal Court for a reversal of the decision.

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